Sausage skin maker Devro has reported a 59 per cent drop in statutory profits for the 2016 year to December despite exchange rate benefits offsetting lower sales.

The Moodiesburn-based group has booked £20.7 million in exceptional costs in the 2016 year for commissioning and starting new plants in China and the United States.

On a statutory basis, pre-tax profits fell to £6.2 million, down from £15.1 million in 2015.

An existing plant in the US was closed in the second half, cutting group headcount by 200.

Exceptional items for the year totalled £22.7 million, up from £14.1 million in 2015.

Devro said its capital investment projects continued to hit cash flow in the 2016 year, and the total cash outflow to complete the projects “was material at £40 million, although £17 million below 2015”.

The increase in investment spend also pushed net debt up to £153.6 million from £125.5 million in 2015.

Net debt was also “further impacted by the significant weakening of sterling” as some group debt is priced in US dollars.

Devro said following the EU referendum last year, reported net debt rose by “approximately £19 million”, including liabilities on financial hedging products, which included took total net debt for the year to £156.2 million.

Volume sales dipped 6.6 per cent in the 2016 year, though reported revenue rose 4.7 per cent to £241.1 million, aided by “particularly beneficial” exchange rate movements in the second half.

Stripping out the effects of exchange rate gains, which added £5.3 million to underlying operating profit, revenues on a constant currency basis were down 6.9 per cent.

On an underlying basis, operating profit rose 14.4 per cent to £38.1 million, lifted by exchange rate movements, a £4.5 million year on year reduction in input costs and “other movements” which added £2.4 million to underlying profits, “including reduced bonus payments”.

However overall manufacturing costs also increased by £0.7 million as a result of efficiency improvements in Scotland and Australia, bringing new plant online and closing old plant in the US.

Devro said: “As highlighted in our November 2016 trading update, the lower sales volumes in 2016, which will result in a lower starting point for sales in 2017, combined with the full year availability of the capacity from our new plants will result in an under-utilisation of available global capacity in 2017.

“This will adversely affect underlying operating profit in 2017, although it is expected to be partially offset by the full year impact of the savings from the closure of the old USA plant, together with global manufacturing efficiency savings from the Devro 100 programme.”

Devro said last year volumes fell 7.5 per cent in Continental Europe, 13 per cent in Russia and surrounding markets and 4.8 per cent in North America.

Volume sales in China were down 31.4 per cent over the year though volumes recovered in the fourth quarter after the new plant in Nantong came onstream.

In Latin America, which Devro said had been impacted by product design problems after sourcing production away from the old USA plant, resulted in a 33.5 per cent drop in volume.

The company states: “Whilst many technical challenges have now been resolved, the process of scaling up testing and requalifying products will take time and we do not expect a major recovery in Latin America volumes until 2018.”

Volume sales also fell 7.8 per cent in Australia, which included the impact of “one significant customer who moved to dual sourcing”.

Volume sales rose 4.5 per cent in Japan and rose 5.9 per cent in South East Asia and sales of its gel product rose 30 per cent year on year, with growth in the US and Europe and the development of “an additional key account”.

Devro warned last November profits would be lower than previously forecast as it launched an efficiency drive, titled Devro 100, to manage capacity as a result of the new plants coming online in the US and China in the first half.

The group implemented “significant change” in its organisational structure in the fourth quarter, moving from “local sales and manufacturing responsibilities to three sales-focused commercial regions, supported by global business development and global supply chain operations”.

Devro said implementing these changes will see it book a “significant level of incremental costs during 2017 and 2018”, estimated at between £10 -12 million over the two years, plus capital investments of “between £7-8 million”.

The group said it expects the changes will deliver benefits of between £13 – 16 million by 2019.

The board is proposing a dividend at 6.1p per share (2015: 6.1p) bringing the total for the year to 8.8p per share (2015: 8.8p).